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Registration
System.
Costa Rica has a centralized registration system called National
Registry (“Registro Nacional”) where
corporations, vehicles, mortgages and real estate transactions are
registered. The Costa Rican registration system is
very advanced and the Registry records not only documents (like
other Registries all along other countries), but it also registries
rights inherent of those documents. A very timely and strict
system records the transactions presented giving legal
certainty to the legal acts.
Most
properties in Costa Rica are registered in a computer system and
each property has an identification number called: "Folio
Real". For different reasons there are some properties that are
not registered meaning they don´t have a Folio Real number
and therefore cannot be tracked properly in the Registry.
Due
Diligence. Before
purchasing any property or even before seriously considering buying
it is advisable to perform a detailed
study before the Public Registry. Such study should
include not only the folio real with it measurement, boundaries,
ownership, location, survey plan, annotations, encumbrances and
liens, but also a study of the transfer chain since
the property was originally registered.
Pending
registration (“Anotaciones”) may be due to filing
of incomplete or erroneous documents, lack of payment of taxes,
etc. A document filed on a property while an annotation appears will
not be registered until the annotated document or
documents are either registered or removed following a special
procedure.
There
are properties on sale that have actual ownership rights and
another ones have only a right of possession or occupation
rights. In the first case the property is registered, but in the
second case the land hasn´t being registered and a
study of ownership cannot be performed before the National Registry.
When
you buy a business it is important to perform a more
detailed study including: lease contracts, employment contracts,
sales, income and property taxes paid to date, permits in place
such as: Municipal permits, liquor licenses, Ministry
of Health authorization, Insurance, Social Security, among
others. Of course the advice of a lawyer and accountant
are preferable in any case.
Property
transfer require for buyer and seller to sign a deed
before a Costa Rican Notary Public (whose concept is different
than the one in many other countries such as the United
States or Canada and is required to formalize all transactions
dealing with real estate) and for such deed to be recorded at the
Public Registry.
Although
titled land can be purchased in Costa Rica in the name of an
individual as well as in the name of a company, and
foreign ownership is fully permitted, it is advisable to purchase
property through a corporation. This structure allows having
flexibility and more predictability on areas ranging from estate
planning, tax management, and representation.
Concession
Land. Like
in many other countries the maritime zone (“Zona Marítimo
T errestre”) land is owned by the Government
and given in lease to third parties, this is known as concession.
This concession grants the authority to a private
party to use the land for a renewable period of time.
Almost the 95% of maritime zones in Costa Rica are concessions
and therefore have special requirements regarding the zoning,
occupation and density, among others.
Cost
of property transfer. In
general, the cost involved in a real estate transaction are
divided in 3 categories: a) Transfer
Tax (1,5% of the purchase price); b) Transfer Stamps (1% of the
purchase price) and c) Legal Fees (1,25% of the
purchase price). So the cost are: 2,5% in tax and stamps plus
a 1,25% legal fees. If you purchase shares of the owning
entity (no transfer deed as explained bellow) the only charge for
the transfer is the legal fees.
Title
Insurance. Title
Insurance works the same that in other latitudes such as Canada and
United States and although it is
not necessary is advisable. In Costa Rica some of the title
companies are: Chicago Title, Land America, Stewart Title, among
others, you can get this service trough your lawyer in Costa Rica.
Maps. Each
property must have a registered map or survey (“Plano
Catastrado”) to be locating the property in the field with
exact measurement, actual boundaries, and description of buildings
or structures. No property transfers can be made if
the land does not have a registered map, and such map must be
quoted in the transfer deed. If such map does not exist,
it must be made by a specialized registered surveyor
(“Topografo”), and then the transaction can be
effectively achieved.
Buying
Property trough acquiring the corporation (share transfer). Buying
the shares of the company that owns the property
instead of transferring it through the Register is a common
practice. This way the seller transfers the shares of an
existing company that owns the property to be purchased, instead
of transferring it through the Public Registry to a third
party. In this case a transfer deed is not necessary but
other legal documentation such as: a purchase sale agreement
of the shares, change the board of directors (so the buyer can take
control of it), several entries to the legal books
and endorsement of shares, among others must be performed.
Although
the share transfer system may sound attractive at first sight, since
it allows to save money in transfer taxes, we do
not always recommend to take this path and advise to
transfer property through the Registry under the standard procedure
of a notarized deed. When you acquire the shares of a corporation
in Costa Rica, as in most other countries, you
do not only get the company’s assets (in this case,
mainly, the property) but also its liabilities, and there is
no mechanism
to satisfactorily list them or rule out their existence.
Such liabilities, if existent, would directly affect the property
being acquired.
Property
Taxes.
Every property owner is obligated to pay its property taxes;
otherwise they might be putting in great risk
their investment. The Costa Rican Government recently passed a law
that expedites all judicial collection procedures (including
taxes) and might be subject to a foreclosure.
In
Costa Rica, land taxes are collected by local governments
corresponding to the county where the land is located, which are
denominated “Municipalities” (“Municipalidades”),
and these moneys are directly used by them.. These taxes are paid at
a rate of 0.25% of the declared value of the property. This tax is
due quarterly and a strict record of payment should be held
by each owner. The payment of taxes do not require physical presence
of the owner in the country, the payments can
be made with the help of your lawyer.
We
advice that prior to the purchase of the property the buyer makes
sure these taxes are paid up to date, if not the new owner
must have to cover them for the lack of payment of the previous
owner. Furthermore if what you are buying is an apartment
or a lot in condominium property you must check if the taxes are
included in the monthly condo fees, since they are
usually not included in such fees and the buyer must pay the
property taxes directly to the Municipality.
Corporate
Taxes. The Fiscal Year (“Período Fiscal”) in Costa Rica
goes from the 1 of
October to September 30 .
Local s
t t
h corporations
do not always need to file income tax statements at the end of each
fiscal year (September 30), especially if there
are only for holding purposes. A case by case study should be
performed in order to determine this.
Nevertheless,
whether a company declares and pays income tax or not, and
applicable to all Costa Rican corporations, a special
tax called “Timbre de Educación y Cultura” must
be paid each year. This tax is relatively low (20 dollars a year).
If payment
is not made, penaltiesapply and the corporation will not be in good
standing.
In
Costa Rica there is not Capital Gain tax as it is in United States.
The only cost on selling property is the transfer tax of (2,5%
indicated above) that is usually carried out by the buyer. Regarding
the income tax if the corporation is for holding purses
or estate planning, it won´t be subject to income tax,
but if the buyer carries a business such as renting the property
and having an income with it, the company might be subject to the
payment of this tax. In such case a specific consultation
is advisable to determine if other taxes like: sales tax or tourism
taxes are also applicable. The corporate rate for
income tax goes up to 30% (the highest bracket).
Corporations. The
typical limited liability company (“Sociedad Limitada” ,
“LT DA. ” or “S.R.L”.) must be incorporated
by at
least two people before a Costa Rican Notary Public. After such
incorporation, the shares may be transferred and it is legally
feasible to have a corporation in which one person is the sole owner
of all shares.
The
incorporators must choose a name and a Board of Directors (which, by
law, must have a minimum of three members, denominated:
President, Treasurer and Secretary) and a Comptroller.
Other
crucial issues to be decided are the social capital of the
corporation; the number of shares composing such capital, (it
is advisable to have a number of shares that would permit future
distributions of the participation in the company) and the
representation of the newly formed company (there must be at least
one representative of the company with powers of
attorney to act on its behalf).
The
incorporation deeds, as well as all changes to the company’s
By-Laws are recorded in the Public Registry, where any person
has access to them. However, all transfers of the company's shares
are recorded in the Shareholders Registry Book,
which is kept by the corporation and is only available to company's
shareholders and officials; all other parties can only
review it with a Court order.
Residency. Costa
Rican Immigration Law allow foreign citizens to become residents in
specific cases that range from having
a family relationship with a local citizen (marrying a Costa Rican,
having Costa Rican children) to demonstrating the
government that the applicant will not be a burden for the country,
mainly showing sound resources to be established in
Costa Rica and, in some cases, to create a business here.
Our mainly recommended regimes are the resident pensioner
and the resident “rentista” status. The resident
pensioner status is used for foreign citizens who have retired from
government service or from selected private entities and receive
from them a permanent life retirement income of no less
than US$600.00 per month (this is in total for all the familiar
nucleolus). Such amount must be transferred periodically to
Costa Rica, and its reception and conversion into colones
at designated institutions has to be demonstrated. The resident
“rentista” regime is applicable to all foreigners,
regardless of age, receiving a fixed monthly income of no less than
USD$1.000,00. per person, this means that if a couple
wants to apply they must have in total an income of USD$2.000,00
a year. The funds of the deposit can come locally or from abroad
and their conversion into colones at designated
institutions has to be demonstrated as well.
Like
many others you probably will get in love of Costa Rica and
planning properly your investment is one of the best decisions
to enjoy this beautiful country.
Sincerely,
BVSQ
Abogados Team
DISCLAIMER The
content of this document is not intended to be a legal advice, they
are for informational purposes only and do not constitute any type
of advertisement.
The accuracy, completeness or adequacy of such contents is not
warranted or guaranteed. We recommend to ask for an advice of a specialized
professional in the legal area.
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